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Yugoslav dinar to be convertible soon, says Governor Mladjan Dinkic |
Belgrade, March 11, 2002 - Yugoslavia will soon have a new law on foreign
currency exchange that will liberalize the area and enable the dinar
to become convertible, seen as another clear signal to foreign investors
that investing in the country is now safe and stable.
Under a new law that should be submitted to the parliament for adoption
by the end of March or early April at the latest, banks will be able
to buy unlimited amounts of hard currencies regardless of the purpose,
and will also enable firms to pay for exports in advance and citizens
to transfer significant amounts of money abroad - all of which is not
possible under current regulations.
Yugoslav National Bank Governor Mladjan Dinkic said in a statement to
the Belgrade based Glas Javnosti daily that by passing the new law Yugoslavia
will fulfill the conditions stipulated in article 8 of the Statute of
the International Monetary Fund, after which the Fund will most probably
announce the convertibility of the dinar in April.
This would be a "clear signal to foreign investors on another advantage
to investing in the local economy," said Dinkic, adding that the announcement
of the convertibility is like a dream come true to every governor in
a country that has had weak currency.
The new monetary system authorities that took power in October 2000
inherited a currency ravaged by years of inflation and hyperinflation.
They launched a firm policy which quickly stabilized the dinar and the
exchange rate - decisive for investments and growth of competitive production.
Since then real demand for the national currency has increased, confidence
in the dinar is slowly being restored and new saving deposits are being
made.
An IMF mission scheduled to visit Belgrade in March will analyze the
economic indicators and new legal regulations in the foreign exchange
sector. The National Bank expects an announcement of the dinar's convertibility
will be made immediately following the visit.
The regime won't mean full convertibility for capital transactions but
it means that foreign banks will be able to exchange dinars for hard
currencies in their countries and that the Yugoslavs will be able to
buy hard currencies with dinars when traveling abroad.
The new law will significantly simplify foreign exchange and will strengthen
the confidence of potential investors. Private banks will have the opportunity
to purchase hard currencies even outside the interbank foreign exchange
market. Banks will not be obliged to sell extra hard currency to the
central bank exclusively, they will be able to keep that extra sums,
to trade hard currencies and through this to lower pressure on the central
bank's foreign exchange reserves.
"The exchange rate will be determined exclusively through supply and
demand of hard currencies and we surely won't be spending hard currency
reserves to maintain an unreal exchange rate," Dinkic said. "However,
I don't expect that we will have any problems at all because the supply
of hard currencies is still going to be higher than demand."
As a clear result of the stabilization of the dinar and firm monetary
policy of the National Bank, the M1 money supply rose to 2.5 billion
deutsche marks in March from 750 million marks in October 2000.
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